The deep dive: Corporate lending

By Puja Sharma

The deep dive’ is our bi-weekly exploration of a relevant topic, hot trend, or new product. For Prime subscribers only.

How does it work?

According to a report by McKinsey, It is possible to identify business processes that can be improved most through digital collaboration by mapping out all core bank processes and prioritizing those with the greatest potential for improvement from digital collaboration (for example, those with the highest “friction” associated with internal and external communications). Costs are usually generated by a few processes.

The role of digital technologies is integral to banks‘ operations and customer relationships. To tackle pain points resulting from inefficient processes and enable further collaboration, banks should map out the necessary technology roadmap. A user-friendly approach should be taken when the tools are implemented, to identify early successes and iterate with feedback.

Who is under the radar?

Increasingly, small firms are looking for easier access to capital as funding shrinks and traditional banks struggle to boost margins in a low-interest-rate environment. A variety of alternative lenders are emerging at a rapid pace to bridge this funding gap, but they face the challenge of creating reliable credit assessment models and navigating increased regulatory scrutiny.

The pandemic has prompted a shift from traditional banking and lending business models to digital ones. As a result of the COVID-19 crisis, digital transformation has become a priority for the majority of banks. Banking giants are expected to make substantial progress in building digital infrastructure in 2021 and beyond due to a constantly volatile demand environment, rising customer expectations, and complex regulatory requirements.

Why does it matter now?

The IBS intelligence data shows corporate lending across the globe is witnessing heavy collaborations between the key stakeholders to capitalise on the growing market opportunity. Ecosystem partnerships are also enabling a rapid transformation of the corporate lending industry. businesses are increasingly shifting to digital models, and nearly a third of the industry experts view it as a leading factor that drives corporate lending transformation.

With an ever-changing market, banks will need to adopt tools and technologies to improve data collection, automation, scoring, and rule-based decisions. In addition to leveraging new credit information solutions, banks and their partners will also have to rethink the way they collect and use customer and prospect data to create credible, quantitative, and demonstrably validated credit decision frameworks, as per a  report by Moody’s.

In the future, lenders will change their underwriting and monitoring practices to maximize credit decisions, while emphasizing creditor- or borrower-level monitoring, stress testing, and operational flexibility. In this situation, it is necessary to aggregate and analyse data in real time. To enhance the efficiency of relationship managers and enhance the customer experience, most banks are now focusing on predictive analytics across the product life cycle. In addition to credit scoring, machine learning (ML) and artificial intelligence (AI) provide more meaning to unstructured data. It is expected that automated credit scoring, widely used in retail banking, will gradually extend to corporates, especially when banks can integrate spreads and other data into their credit rating models to automate the process.